Lipper: Lifecycle Funds Explode in Popularity

March 14, 2005 (PLANSPONSOR.com) - A desire on the
part of retirement plan participants to have an expert keep
an eye on their investments has fueled a dramatic increase in
the number of lifecycle funds being offered, according to new
report from Lipper Research Services.

The report, Lifecycle Funds: Fit for Life, said there
were more than 244 lifecycle funds with $139 billion in
assets at the end of 2004, up 38% from the 205 funds with
$101 billion in assets a year earlier.

Lipper said it is using the Lifecycle moniker as an
umbrella category for lifestyle funds (fund allocation
based on participant’s risk profile – often
conservative, moderate, and aggressive) and target
retirement funds (geared to a participant’s target
retirement date with less aggressive allocations for those
nearly at retirement). Lipper said there were $95.8 billion
in lifestyle funds by year-end 2004, up 28% while assets in
target retirement plans skyrocketed 65% to $43.9
billion

“The appeal of both lifestyle and target retirement
funds is that, with fund management companies managing
allocations, investors can concentrate on other
things,” Lipper researchers wrote. “Because of
their convenience lifecycle funds should keep growing, In
addition, an increasing number of fund management companies
are jumping on the bandwagon and rolling out competing
offerings.”

According to the Lipper report, of the 55 fund companies
offering lifecycle funds, Fidelity Investments has 34.2% of
the market followed some distance behind by The Vanguard
Group with 17.2%. Rounding out the top five were Frank
Russell with 4.2%, T Rowe Price with 4% and JP Morgan with
3.9%.

Lipper said that plan sponsors have been trying to
encourage eligible employees to participate through efforts
such as auto enrollment, but that many are now relying on
the lifecycle funds as a plan default option to help the
non-engaged workers with a proper asset allocation. Many
plan sponsors had previously been using money market or
stable value funds for this purpose, Lipper asserted.

The company pointed out that studies have shown that
many participants misuse the lifecycle funds by employing
them alongside other investment options. “Plan
sponsors need to invest more resources in their education
and communication programs so that participants reap the
most reward from the lifecycle investment options,”
Lipper warned in the report.

On the negative side, Lipper pointed out lifecycle funds
are only as good as the fund family’s product lineup
since they are shares of the other funds. Also, Lipper said
different fund companies’ target retirement funds with the
same retirement date can assume different levels of risk
because they may be based on different asset allocation
models.